JPMorgan reports that momentum stocks experienced their worst monthly performance since 1985 during October. The bank's head of global markets strategy, Dubravko Lakos-Bujas, noted that the long momentum portfolio lagged behind the broader market by 11%. This decline represents a 6-sigma move, marking the most significant monthly drop in data tracked since 1985.
The downturn was primarily driven by a rapid sell-off in AI-related equities. Investors expressed concerns regarding the potential return on massive capital expenditures for AI and tightening liquidity. Consequently, hedge funds offloaded global technology stocks at a rate not observed since 2016. The Nasdaq 100 index concluded October with a decline of approximately 5.3%.
Despite the volatility, JPMorgan characterizes the October performance as an intra-cycle deleveraging reset rather than the conclusion of the AI supercycle. The bank advises clients to purchase stocks, noting that the Invesco QQQ fund's Relative Strength Index fell below 30, a traditional indicator of an oversold market. Major cloud providers continue to maintain robust AI capital spending.
JPMorgan analysts highlight that market headwinds persist due to weakened retail buying activity and a slowdown in corporate share buybacks. The bank's outlook remains contingent on cloud providers sustaining their current investment levels, which are expected to eventually translate into revenue for firms providing chips, servers, and software.
